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Slotting Allowances and Retail Product Variety under Oligopoly

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  • Innes, Robert
  • Hamilton, Stephen F.

Abstract

Slotting fees are fixed charges paid by food manufacturers to retailers for access to the retail market. The role of the practice and its effects on market efficiency are highly controversial. To date, the literature has focused on the effect of the practice on retail prices; however, slotting allowances also have the potential to alter the range of products available to consumers. Our analysis reveals that the strategic use of slotting allowances by oligopoly firms leads to a superior allocation of product variety among retailers. Indeed, absent price effects, we show that slotting allowances lead to the socially optimal provision of product variety.

Suggested Citation

  • Innes, Robert & Hamilton, Stephen F., 2010. "Slotting Allowances and Retail Product Variety under Oligopoly," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 60948, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea10:60948
    DOI: 10.22004/ag.econ.60948
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    References listed on IDEAS

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    1. Jeanine Miklós‐Thal & Patrick Rey & Thibaud Vergé, 2011. "Buyer Power And Intrabrand Coordination," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 721-741, August.
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    4. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 261-276, September.
    5. Innes, Robert & Hamilton, Stephen F., 2006. "Naked slotting fees for vertical control of multi-product retail markets," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 303-318, March.
    6. Daniel P. O'Brien & Greg Shaffer, 1997. "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 755-785, December.
    7. Greg Shaffer, 1991. "Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 120-135, Spring.
    8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    9. Shaffer Greg, 2005. "Slotting Allowances and Optimal Product Variety," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-28, June.
    10. Patrick Rey & Thibaud Vergé, 2004. "Bilateral Control with Vertical Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 728-746, Winter.
    11. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
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    Cited by:

    1. Hirsch, Stefan & Koppenberg, Maximilian, 2020. "Power imbalances in French food retailing: Evidence from a production function approach to estimate market power," Economics Letters, Elsevier, vol. 194(C).
    2. Lømo, Teis Lunde & Meland, Frode & Sandvik, Håvard Mork, 2020. "Do slotting allowances reduce product variety?," Working Papers in Economics 7/20, University of Bergen, Department of Economics.
    3. Mouzas, Stefanos & Bauer, Florian, 2022. "Rethinking business performance in global value chains," Journal of Business Research, Elsevier, vol. 144(C), pages 679-689.

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    More about this item

    Keywords

    Agribusiness; Agricultural and Food Policy; Industrial Organization; Marketing;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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